Pricing Online Content: Fee or Free?*

Many online content providers aim to compensate for a loss in advertising revenues by charging consumers for access to online content. However, such a choice is not straightforward, because subscription fees typically deter customers, further reducing advertising revenues. In this research, we empirically examine and quantify a content provider’s trade-off between advertising and subscription revenues. We build a unique data set from the sports’ website ESPN.com, which offers the majority of content for free but charges a membership fee for a subset of articles. We collect data on the number of free and paid articles per day and sport, as well as demand for each type of article per day and sport over a 13-month period. We estimate how the number of free and paid articles affects viewership of the site, and empirically quantify a firm’s trade-off between advertising and subscription revenues, controlling for a wide range of possible demand shifters. We find that, on average, the firm should not adjust the amount of paid content. However, our results show strong differences across sports’ seasons: the marginal paid article increases revenue in the off-season but decreases revenue in the regular season. This finding implies the firm can increase revenue by flexibly adjusting the amount of paid content it offers across sports’ seasons. More generally, our results suggest that online content providers should carefully identify temporal variation in demand, and over time adjust the amount of paid content they offer rather than setting a static paywall.